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New Oriental Upgraded to Strong Buy

On Jul 04, Zacks Investment Research upgraded New Oriental Education & Technology Group (EDU - Free Report) to a Zacks Rank #1 (Strong Buy) on the back of a strong fourth quarter and fiscal 2013 outlook.

Why the Upgrade?

New Oriental has a bright outlook for the fourth quarter and fiscal 2013. New Oriental expects revenues to increase in the range of 20% to 25% year over year in the fourth quarter of 2013. At the third quarter 2013 earnings conference call, the management revealed encouraging enrollment data for the first six weeks of the fourth quarter. They said enrollment increased 14% year over year in the first six weeks of fourth quarter 2013. The cash receipts in advance for enrollments for the same time period rose 34%.

At the Deutsche Bank Depositary Receipts Virtual Investor Conference call held on Jun 24, New Oriental provided outlook for fiscal 2013 .The company expects enrollment to grow 6% to 8% for fiscal 2013. Total revenue is expected to grow in the range of 25% to 30% for the same period.

New Oriental also provided encouraging outlook for fiscal 2014. For fiscal 2014, management expects enrollment to increase 6% to 8% while revenues are likely to be up 20% to 25%. Prices are likely to increase around 12% whereas margins are expected to expand over 15% to 16%.

New Oriental recently completed a share repurchase program worth $50 million. Given its strong cash position and if approved by the board, management expects to pay a dividend of 30 cents per share or higher after the fourth quarter (ended May 31) results are announced.

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